Overburdened Chinese regulators have left the peer-to-peer lending industry to poorly staffed local governments, according to ex-regulators, threatening the survival of an important credit mechanism once seen as crucial for the country's economy.
The resulting difficulties, as the industry tries to grapple with pyramid-scheme scandals and runaway bosses, underline the struggles China will face as it tries to balance financial risk and innovation.
Although P2P lenders elsewhere in the world have been viewed skeptically because of how they mix mom-and-pop investors and higher-risk loans, in China the sector was seen as helping plug a gap left by larger lenders.